How a family expresses its values may affect the fate of its business

By Dennis T. Jaffe

Many family businesses are lauded by customers and communities because of their visible embrace of and accountability for values. The public knows the family stands for something because they know the family as people, not as an abstract corporation. These values affirm the family's commitment to quality of products, service to customers, respect for employees and giving back to the community, virtues that lead to greater respect for the company, in a world where business has been called out for putting profits above people. By publicly stating a value, the family affirms that in addition to running a profitable business, other goals have equal standing.

These values can sometimes be placed above the profit motive. A famous example is the Massachusetts company Malden Mills, whose owner continued paying its workers after a fire destroyed its plant. (Malden Mills later filed for bankruptcy; in 2007 it was sold and changed its name.) A company is admired when the owners invest extra in quality, service or loyalty. This may make good business sense, but publicly espousing the value puts the owners on record as saying they will act this way even if sometimes it costs them. A family enterprise does not always look toward short-term profits; it can take a long-term perspective as a steward for generations to come.

Recently there has been controversy about how company values are expressed and implemented. I want to explain how differences of opinion about values can arise in order to create some clarity about the issues in this debate, which have sometimes been lost in the emotional exchange of positions.

Many types of values

There are many types of values, concerning personal behavior, customers, products, environmental impact and philanthropy. A company can, for example, sell only products that express values about environmental responsibility or safety, or refuse to sell products that the owners feel are not safe or healthy, like alcohol, cigarettes or guns, or offensive magazines or movies. Customers can get these elsewhere.

The company can also express values about employee behavior. Some companies hire with clearly defined behavioral expectations, and have dress codes and even morning prayers. Companies "hire for values" that they respect and admire and that help the company fulfill its values-based mission. In the early 20th century, some companies went even further in expectations of employee behavior. Henry Ford sent company "social workers" to visit the houses of employees to see if they were living a moral family life. He paid his employees really well, but they were expected to share his religious and moral values.

Such uniformity of values can sometimes raise questions within a pluralistic community, where customers and community members might hold other values. In a small company where the family members are in the front, serving customers, what practices can they enforce? Can they refuse to provide service or sell their wares to a person whose views they do not share, citing their religious beliefs? Are they condoning what they believe is sinful behavior by offering a product or service to someone whose behavior does not match theirs? Is it wrong to serve someone who is believed to not share the company values?

When the founder or founding family is present, this is deeply personal. When the business expands—to cover several sites and serve a larger market—at what point do these policies become problematic because of the size of the market? Has the business entered a different realm, and should individual family members consider adapting their values to fit a more pluralistic community?

A family can certainly choose not to sell a magazine or movie that expresses social or political views that they oppose. They may lose some customers, but their values are more important. But can business owners use their values to enforce standards on customer or employee behavior that challenge community laws and standards? They can, but there are limits to what they can do, and there are costs involved.

The community depends on its businesses to provide goods and services. A company has a social contract with the community. When must the owners' individual choice include social negotiation with employees, customers or the community? When a company is owned by a family who are not actively present, the business must respect the values of the family owners but also must adapt to the community. For example, a company's owners may not be comfortable hiring young people whose appearance and work style is different from theirs. But their employees or customers may make it clear that refusing to adapt might affect the success of the business. If there is just one store and the family owners are present, this may not happen, but when there are many outlets, the company management and employees must consider adapting their values to fit a wider community.

Civic culture

The U.S. has a civic culture premised on pluralism. The country is a blend of religious, ethnic, social and political groups who hold diverse values. While everyone has a right to his or her views, the views of others must be respected. For example, if business owners restrict their employee pool to those of a certain appearance or religious values, they may sacrifice their ability to serve the community. Several studies show that when a company is itself open to different opinions, it is more successful in performing and adapting to change. The choice to adapt should not mean abandoning deeply held values, but it may lead to working with employees and community members to find ways to apply personal values while also respecting community differences.

At some point the family owners must differentiate between types of values. A family may have its own deeply personal values concerning faith and personal behavior, but may develop a somewhat different set for the business. Business values may incorporate some of the owners' beliefs, but it may be imprudent for a larger business, with facilities in many communities, to enforce all the owners' personal beliefs.

As a family business grows and different generations emerge, the family itself may find its values diverging. Some new (or prospective) owners, often in the next generation, want to see their legacy values practiced differently, or many even hold different values. For example, consider the case of a family who owned a natural resources company. The next-generation family members had strong values around sustainability and wanted those values applied to the company operations. This would be costly and might interfere with the short-term profits. They had to lobby the family, and some non-family owners, before their values were adapted.

Within the family, values can be more personal. They may express them fully independently from the business, but also publicly. A family can visibly support its legacy values through philanthropy, private giving, serving in community or church organizations, or through a family foundation. When should a family shift from doing it as a company to privately? One example is when support for an issue leads to loss of business or public dissension. Should a family belief lead to a controversial public position? What if other shareholders, even within the family, do not share these views? I believe this happens when a small family company has expanded and entered a broader community, and the owning family finds their personal views are not held by all others, and that this affects their community standing and business effectiveness. Maybe some companies can survive by marketing only to people who share all of their beliefs, but in a diverse community, a family enterprise takes a risk not by holding a value, but by how publicly they express it.

When the family owners express different values from others in the community, they can be seen as courageous by those who agree with them, and even by some others who admire them for standing up for what they believe. But the family is also inserting their company into an issue that has to do with citizenship and society, not with their business. Taking a stand that puts the family in conflict with some parts of the community may endanger the business for future generations.

Setting boundaries

Many family business advisers suggest that over generations, family owners create a clearer boundary between family and business practices. Instead of considering the business as an extension of the family, proactive owners create clear policies to govern the family's relationship to the business. As they become a business-first family, good business practices may not be fully aligned with the family's personal interests. Family members cannot all work in the business, and leadership may flow outside the family.

It may be that another element of this boundary creation is that the family must begin to separate some of its personal beliefs from the business, while expressing other values more directly about commerce, within the business. To thrive over generations, this differentiation may be good business and also allow the family to personally express some of its social and moral values in other areas.

As a family shifts from family-first to business-first, the business continues to respect the values of its family owners, but also to incorporate the views of its other stakeholders—employees, customers, suppliers and community members. The family encounters a broader diversity of opinion, recognizing that not everyone shares the same views, and that if the business is to achieve their growth objectives, perhaps they must become less divisive and more inclusive in their values.

Dennis T. Jaffe, Ph.D., is a family business researcher, educator and consultant who has championed the values-based perspective. He is author of the forthcoming research paper "Releasing the Potential of the Rising Generation," available from Wise Counsel Research, and the book Cross Cultures: How Global Families Negotiate Change Across Generations, co-authored with James Grubman (www.dennisjaffe.com).

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